Anglo African Oil & Gas – radical shake up of the board could be the catalyst for big things AAOG

24 Jan 2018

Just before Christmas we hosted a written question and answer interview with David Sefton, Executive Chairman of Anglo African Oil & Gas (LSE:AAOG). Feelings have been running high among the Company’s shareholders, as Anglo missed a number of key targets last year. However, Sefton gave a series of full and frank answers about what has happened with the company and the decisive action he’d taken to turn its fortunes around. This morning, Anglo gave a surprise update to the market announcing sweeping boardroom changes. Things have just got a lot more interesting here.

The headline of today’s news was that Anglo has appointed James Berwick as CEO with immediate effect. Berwick is highly regarded in the oil & gas industry, having held senior executive roles at the privately owned Impact Oil & Gas and London-listed Ophir Energy (LSE:OPHR). Feedback we’ve received from unconnected sources is that this is a heavyweight appointment.

When we spoke to Sefton a little earlier today he told us, he “is delighted to have secured James’ services and cannot think of anyone better suited to the role. He is well known to SNPC (Société Nationale des Pétroles du Congo) and the ministry and has a track record of successfully developing oil and gas assets in Africa. He is a brilliant addition to the company and we have high hopes the business will thrive under his operational leadership.”

At some point we will try to catch up with Berwick directly, to learn more about his plans for Anglo, but he was not the only one to join the board today. Anglo has also appointed three new non-executive directors, each of whom looks very impressive based on information available about them. Phil Beck is a petroleum engineer and according to Sefton “fills the technical gap in the company, which we’ve wanted to fill for some time”. Sarah Cope “is a high calibre and experienced investment banker, with a lot of experience in oil & gas”. Meanwhile, Nick Butler is “supremely well connected in political circles and is a seasoned veteran at making money in oil and gas companies.”

It is a little premature to start talking about dream teams, but there is no doubt Anglo’s board is significantly stronger today than it was yesterday. This is very good news and the company is still “fully funded in accordance with the license terms” for the forthcoming TLP-103 exploration drill, which investors have been looking forward to for so long.

However, before anyone gets too excited it would be worth taking a pause for breath. Whenever a new management team joins a company it is standard practice to frontload any bad news. New directors have the luxury of being able to flush out any lingering issues, while letting former directors take the blame.

For Anglo one of the obvious issues concerns is its funding. At the end of last September, the company said it had $4.1million in cash and expected it share of TLP-103 to cost approximately $2million. It’s now nearly four months later and despite the cost cutting measures Anglo has put in place a company cannot be run on free air.

Another issue for private investors to consider is the rig for TLP-103. On 11 December, Anglo announced that it had “recently inspected its preferred rig for the drilling of TLP-103, which is on operation with a major international oil company in the Congo.” The company expected that those drilling operations would complete by the end of January and that drilling of TLP-103 could commence “in Q1 2018”.

It is early enough in Q1 that Anglo still has time to meet its goal for securing the rig, but there is a sense of skittishness out there in the market. Although sentiment is shaky, Sefton is resolute. He told us “as expected, our preferred rig is nearing the end of its current drill. There was one issue, which might have lost a week or two, but we still expect the rig to be free for us in February. We will know for certain when the current drill is finished. Even if there is an unforeseen problem, we do have two very good ‘Plan Bs’ in place. Either of these would involve shipping a rig into the country, but this would only take a matter of weeks, not months.”

In the context of today’s board news, the future for Anglo is suddenly looking a lot brighter. The shares are up slightly at 11.5p on the ask, valuing the company at £8million. For those that are new to the stock this could be an enticing level to open a position at. For anyone who already holds, a watching brief might be more appropriate. Whatever the case after a difficult few months there are clear indicators that this company has turned the corner. When the drill finally starts turning at TLP-103, this could trigger a great deal of wider interest from the market.

The S&P500 has reached new highs again. It’s likely to run on to tackle the 3000 milestone level shortly, where the chart suggests strong headwinds lie. But during the past decade bull run, (assuming we’re still in one) investors have seen this scenario play out positively before - where a big move upward followed with gusto, despite seeming unlikely. Will the third time be so lucky?

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